Session 6 Flashcards
What is a strictly dominant strategy?
For a strategy to be strictly dominant, it needs to be always better than any other strategy.
In games where the unique Nash equilibrium consists of each players dominant strategy, players are more likely to behave according to the equilibrium in real life (because its easier to determine the best course of action in such cases.
What is a strictly dominated Strategy?
For a strategy to be strictly dominated, it is sufficient to have 1 strategy that is always better than it.
Strictly dominated strategies can be ignored (nobody will pick them)!
The word “payoff” has a monetary connotation, but what is it also about?
- People also care about the non-tangibles that affect them, and they may care about others well-being (social preferences)
- The word “utility” is sometimes used to capture a broader set of consequences beyond monetary payoffs
What do you have to take into account in binary ultimatum games?
How social norms and preferences enter payoffs (utility) has to be taken into account
- Example: 2 players splitting 100€
-> Nash Equilibrium is to make an unfair offer
-> But people do not actually play the equilibrium
-> Because of social preferences (altruism, inequality aversion, positive/negative reciprocity etc.), social norms
What is shown by a public good game?
A public good game shows, that in an infinitely repeated game, there is incentive not to cooperate at all (Farmers game) (Guess-and-verify method!)
But in a version with a punishment option, the cooperation increases without having to resort to punishment (details on slides)
What are factors promoting Public good contribution?
- Social preferences and norms -> evolve slowly with culture
- Social recognition and punishment -> easier to change through the design of institutions
What is a pro of Lab experiments?
Offer high internal validity: Extent to which a study accurately establishes a causal relationship
- Rules of game are clear to all participants
- Clean random variation of the “policy” of interest
- Decisions have tangible consequences for participants
- Lab experiments can be easily replicated
What are cons of Lab experiments?
Offer low external validity: extent to which a study results can be generalized to other contexts
- Participants are predominately students, often from specific populations
- Many participants may not be familiar with the types of decisions they’re asked to make
- The decision environment might be too abstract, not reflecting real-world markets
Why do you do field experiments and why do you lose internal validity with those?
With field experiments, you can incorporate as many real-market features as needed to confidently extrapolate the results
But you often lose some internal validity, because you lose control over how closely you can:
- Frame the decision environment relative to your model
- Manipulate the policy x
- Measure the outcome interest y -> Examples for all slides
What is captured by the static chicken game?
Conflict between two opposed parties may entail increasing threats of escalation, up to a point where either one chickens out – otherwise disaster happens
Slides!
Whats a challenge of the chicken game?
Because both mismatched strategies are an equilibrium, sometimes disaster happens just by failure of both players to play the same equilibrium.
What is the median voter theorem?
When citizens preferences are single-peaked, the preference of the median voter wins any alternative in majority voting elections
What are single-peaked preferences?
When you have one ideal point, and the further away a policy is from your ideal point, the less you like such a policy. (Example: ideal tax-rate, ideal defence spending, ideal immigration quota)
What is majority voting?
A system where the candidate that gets the most votes wins.
- Proof of the theorem is technical, but intuition is simple: single-peakedness allows summarizing individual preference to a dot on a line
- Then, the problem becomes similar to Hotelling’s beach. The median policy will (being in the middle of the beach) prevail